Our June 27, 2017 blog discussed the significant transition to mobile banking that is occurring. To quickly rehash, we are only a few years away from having the Millennial Generation as the majority in the nation’s workforce. These will be the people who are purchasing houses, paying property taxes, consuming electricity, seeking licenses/permits, and saving for their children’s college. The higher education world is already heavily interacting with Millennials.
This is the generation that doesn’t use checks. So how does your organization plan on taking their payments?
We noted earlier that one of the biggest impediments to transitioning away from checks is charging so-called “convenience fees.” There is a need to move away from the inefficiencies of cash, checks, and in-person payments. But these darn convenience fees are keeping vast numbers of people from making payments electronically. As noted, very few people, if any, are eager or willing to pay an additional fee when making tax or similar payments. I can hear you asking, “So what can we do? We can’t afford or are ‘not allowed’ to absorb the interchange fees,”
Rest assured, your organization is not alone in this. So let’s learn from each other.
Start by recognizing that cash, checks, and in-person payments are inefficient—meaning there is already a cost and you are already paying it. Consider offering your constituents a transition period. This helps both you and them prepare for the change. Then consider some of the following options, each requiring you to study the pros and cons, but each capable of moving you along the path to increasing your electronic receipts:
Uniform convenience fee: As we’ve said, cash, checks, and in-person payments are expensive. Unless specifically prohibited by law in your state (and I don’t know of any that do), you can apply a uniform convenience fee to all payment types. Then people will pick the type most convenient for them—and likely for you, too.
No convenience fee: We see that those who do not charge a convenience fee enjoy a far greater volume of electronic payments. It’s not really all that radical. This option impacts the pricing of all services. You just need to figure out how much all fees need to go up to absorb the costs associated with increased electronic payment receipts. Cost increases spread across all services may not be that noticeable in any one transaction.
Give multiple electronic options: More and more smartphone and tablet apps are coming out each year as the financial industry seeks to make electronic payments quicker and easier. Each will likely have different pricing structures. Research your options and keep your eyes open for apps that will work best for you and your constituents.
Look at your options: The number of non-traditional financial providers (meaning other than banks) has increased in this era of apps for handheld devices. Check out these providers and see what they have to offer. Innovation is providing opportunities to lower costs for everyone.
As always, we at three+one are here to help you. We continually review all treasury services, seeking new and innovative ways to maximize value of your cash.
See Us At These Upcoming Events and Conferences:
Ohio GFOA – September
GFOA SC – October
PA GFOA – October
Did you know the average cost of issuing and awarding a Request for Proposal (RFP) for banking services, using internal resources, is… $45,000?
At that cost, the RFP better be worth it!
In many instances, that’s not the case. What we tend to find are 2016 banking-services RFPs are often trapped in a 1990s template.
Recently, I reviewed a large national banking RFP that had the same wording of ones I’d seen many years ago. In fact, it was a replica of another such organization’s RFP that had been issued several years before. It lacked color, specifics, and data and was serving as a set up for a price war between banks. The real problem is that very few banks will respond to it. The end result will be a ton of money spent with no significant outcome to warrant the expense.
If you are planning to issue a banking RFP, consider the following:
(1) Conduct a liquidity/ banking analysis first that will assess all your organization’s needs, now and well into the future. The more information you can provide competing banks, the more they have to work with in providing a better response.
(2) Create a new RFP format that is fresh, forward thinking, and flexible, making it clear you will consider new ideas.
(3) Limit responses to fewer words and have more in-person conversations. We’ve found paper is not always the best way to determine the right fit.
(4) Address your cash and lending needs both now and in the future; provide a holistic picture. Given new federal regulations, many banks have not been responding to RFPs due to their lack of interest in holding such deposits.
(5) if you hire a consultant to prepare your RFP, make sure you’re not getting a rehash of some other client’s template. Make them do original brainstorming on your RFP and be accountable for the results.
If you decide to issue a banking-services RFP, do it right or else you will be just sending out expensive sheets of paper that will provide little value to your organization or to the banks you want to compete for your business.
If you don’t know where to start or need a fresh perspective, call us. At three+one, we help entities of all sizes evaluate their needs and determine if a banking RFP is right for them. If you’re interested, we can tailor an RFP document for you that is easy to read, reflects and articulates your needs, and is written to get more responses. Our goal is to make the paper your RFP is printed on an asset and not an unnecessary expense.
We Hope to See You at our Upcoming Presentation:
GFOA of SC – October 16 – 19 (We’ll be presenting twice!)
North Country NY GFOA – October 20th
This is the first part of three+one’s Summer Blog Series . As there are five Tuesdays in August, I will be addressing the top five questions the nation’s public and Higher Ed financial officers ask me as I travel across the country. Today’s question:
Given there are less bank branches and more efficient online banking services, how come my banking costs aren’t going down?
Over the last several months, Pete and I have had the opportunity to speak at a number of finance-related conferences. At each one this question has come up: “Given fewer bank branches and greater advancement in technology, will my banks costs go down?”
The answer is both “yes” and “no.”
First the “no.” Given the higher risk and increased compliance mandates established by the Dodd-Frank Wall Street Reform Act*, banks of all sizes have a batch of new costs to deal with.
While fewer bank branches and a reduced support staff do help, banks have had to add compliance personnel to meet new audit and “Know Your Client” demands. It will take a while for banks to fully adjust to the staggering costs of their new reality.
For the top-tier banks, the added costs of federal oversight are in the billions. Regional banks are seeing new costs in the millions. Even small community banks will be spending hundreds of thousands of dollars to fully comply.
Naturally, these costs are then passed on to their customers with higher checking/ATM fees and lending rates along with lower deposit rates.
Now for the “yes.” Bank fees will likely move downward as technology continues to advance thus making them more efficient. I also see banks benefiting from higher interest rate spreads—but all this could take four to five years.
*Already 22,000 pages thick and more are expected!
Stay tuned for next week when we continue our three+one Summer Series where we answer the question: “Why are banks no longer interested in my deposits?”
Do you make purchases on your desktop computer when you’re sitting in your office? Or do you shop via some app on your smartphone? When doing one, have you wondered why you can’t do it on the other device? Or has there been information on the other device you wish you had access to? Perhaps it is not so much the information but the functionality that you wish existed on both options.
That time may be coming. People who monitor the big tech and payment companies (Google, Apple, PayPal, etc.) have found that Google appears to be preparing its various Android apps to function on its Chrome operating system. This has many implications, but the one we think will impact public entities and higher education institutions the most is for making payments.
Public entities and higher ed facilities do not sell tangible products like clothing or furniture. When people make payments to these institutions it is for services. As user experience making digital payments becomes easier and safer, more payments will migrate to electronic means and away from cash and checks. This is great news as electronic transfers can be cheaper and easier.
This trend is not going away. It may not be the way organizations have “always done it”—meaning how they’ve received payments—but it will be the way you’ll want to do it and, likely someday, need to do it.
It’s time to look at your systems. Do they have the flexibility to add additional payment options (whether receipts or disbursements)? Are your constituents already asking if other payment options are available? The requests may come slowly at first, but you can be sure they will come.
Will you be ready?
Have any questions or comments for the author? Reach out below!
COO and Co-Founder